Voluntary MTD

The announcement on 13 July 2017 that the rollout of MTD for business was to be pushed back to 2020 came as a big surprise to everyone, including the software development support team at HMRC.

The latest timetable (see below) is still quite vague, but the written statement made by Mel Stride, Financial Secretary to the Treasury, makes it clear that compliance with MTD reporting will be voluntary for taxes other than VAT until at least April 2020.

That statement says: “The Government will not widen the scope of MTD beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest. This will ensure that there is time to test the system fully and for digital record keeping to become more widespread.”

Time for redesign

HMRC has acknowledged in calls to software developers that the MTD project needs to be reconfigured into something that businesses want to use, as the emphasis will now be on encouraging people to opt into MTD, rather than compelling people to use the system with the threat of penalties. This indicates that a redesign of the whole structure of MTD will be required.

The difficulty accountants will face is persuading clients that the costs of using MTD-compliant software will be outweighed by the convenience of digital record keeping, better accounting information, and potentially lower accountancy fees.

Some accountants won’t push their clients towards using MTD software until it becomes compulsory, others will continue along the road towards cloud accounting for all clients.

The law

It is clear that voluntary MTD reporting will mean the current online and paper methods of filing tax returns will have to run in parallel to MTD reporting for some years. It follows that the law which underpins MTD, (dropped from FA 2017 before it was rushed through Parliament in late May) will have to be redrafted yet again. We are not likely to see a new version of the draft MTD law and regulations before September 2017.

Software implications

A key plank of the original MTD plan was that free software would be available to allow the smallest businesses to comply with their MTD reporting obligations. As MTD reporting will be voluntary for businesses which are not VAT registered, the need for this free software disappears. This could punch a hole in the bottom of the business plans for start-up companies planning to develop MTD software for sole-trader businesses.

The absence of free software should not greatly impact well-established software developers. Rob Ellis, CEO of BTCSoftware, said the company has been closely working with HMRC's Digital Team for the past 18 months on MTD and would continue to do so. It would, however, take this opportunity to canvas opinion from its customer base as to what they will need from tax and accounting software over the next few years.

More consultations?

If HMRC wants to hear the tax community’s ideas about the direction and development of MTD, they need to issue some new consultation documents. We have been promised a consultation paper on complex businesses and MTD since December 2016, which has still not materialised. This document was supposed to cover how MTD would apply to companies and larger partnerships.

The current plan for MTD is based on HMRC releasing APIs to handle the transfer of data to and from accounting software. However, to date there have been no APIs released to deal with accounting data from any size of partnership, and similarly, no APIs exist for trusts which carry on a trade.

The issue of VAT reporting under MTD was not covered in great detail in the MTD consultations last summer, as the consultation papers only addressed unincorporated businesses. Now that the emphasis is on requiring all VAT reporting to be done using accounting software, the sensible way forward would be to have a full consultation on the VAT related issues, including draft legislation, before the necessary software is designed.

Replies

The big question I have, is why they didnt listen in the first place BEFORE putting the daft plans in place?

And why did they carry on for several years with this nonsense, when the initial very negative reactions had been heard? Reactions from the very people (accountants) who stood to benefit the most from all the extra work.

It has taken the stalling effect of a general election and being heavily slammed by both the house of commons and house of lords select committees, plus a dearth of software engineers willing to work for HMRC for this to be finally stopped. Some proper listening at the start would have prevented the initial direction of travel with fantasies about clicking a few button on a phone "doing the books".

Brexit is easy. Those over here stay with full rights under our laws and courts. Same for us over there. Information swapping dosen't change.
As the single market is linked to people movement and we want to control people movement there is no deal. So if the EU want to trade with us they will have to negotiate with us not us to negotiate with them. No it's not a two way thing. We voted to come out, with good reasons. As for paying the pensions of MEP's etc, I don't think so. So where's the problem? Oh yes politicians getting involved again.

I much respect and acknowledge your erudition and grasp of taxation law.

However, in this instance, with respect to the above, you are conflating two disparate issues: viz, MTDfb and Brexit.

Brexit was galvanised by a majority vote in a binding Government referendum: binding only in the sense that any ruling party which chose to ignore the result and the copious input would be doomed.

In the case of MTDfb, Treasury and HMRC had clearly made up their minds to push this project ahead, despite whitewash "Consultations".

The single socio-economic group which would be/will be most affected by MTDfb will be the lower echelon SME community: and the professional advisers who serve them.

Which is wholly different to Brexit.

The SMP-SME practices must continue to robustly resist this arrant nonsense, in their own cause and primarily their clients.

The roll-out of Self Assessment and the simultaneous move to Current Year Basis from Preceding Year Basis, was basically seamless: all apart from the inequitable penalty for those new businesses which commenced trading before or after April 6th; since they would be compelled to pay Schedule D Tax twice on the same Net Profit; unless they failed quickly. Otherwise the carried Overlap Relief, with inflation, was derisory.

MTDfb, however, was a whole new ball game: it was originally an imposed, mandatory and punitive regime, to which the majority SME sector were and remain incapable of managing.

I firmly remain convicted of my eventual conclusion (reached after significant research and participation in the Lord's consultative process:

That MTDfb will be a greater Governmental disaster than Peter Lilley's Social security card fiasco

Maybe HMRC was persuaded too easily by software companies who viewed MTD as yet another opportunity for extracting funds on a grand scale from compliant and long-suffering SMEs.
Frequent marketing communications, in the guise of keeping me informed on the subject of MTD, told me what a terrific opportunity MTD was going to be for my practice. My practice?! I don't want my practice to grow by the imposition of another burden on my clients, many of whom have minimal IT skills, not enough to file their VAT online, yet still keep their books immaculately and pay their taxes in full and on time.
I still can't see how 5 opportunities each year for error, instead of one, could be called an advance for anyone, and I've heard nothing to convince me that anything about MTD would have been an advantage for any of my clients - and that includes reviews by some well-known and respected accountancy professionals . Even the responses from the professional bodies were a bit mealy-mouthed and, I thought, ought to have been far more strongly worded.
MTD now stands for Much Too Difficult.

As an aside VAT is really hard to do in software. I have just sat here filing several VAT returns from cloud software, none of which I have auto filed, I have got a bridging file and use HMRC's portal.

These include (I have done 6 today, all software in a single batch I will do the excel ones next week)
Clients going from Flat rate to normal rate (VAT which are incorrectly computed by 'dumb' software not accounting for tax points properly)
Cash accounting issues
Moving from cash to accruals accounting
Overseas EU sales
Overseas exempt sales
Issues about what box 7 figures being or "zero rated" or "outside scope"
A short period of account (to align with year end)
A double period of account due to returned post last quarter mean no period was generated

All fixed with a manual adjustment and a punch in.

If the current crop of front line market leading cloud software cant easily get VAT right first time now, when will it? They don't have long to get it right and deal with even 'everyday' issues such as long/short accounting periods, let alone things like changes in rates, going to/from different schemes etc which whilst not that often, happen, and need to work with any automatic data entry, WITHOUT the accountant having to sit and re-code dozens of transactions.

"MTD reporting will be voluntary for taxes other than VAT until at least April 2020".

If one reads this over and over again, you're left with the emphasis of "at least" - meaning maybe never?

From a personal point of view, I've worked alongside HMRC, since 1973 and, at that time, I had the utmost respect for; the regime and, the staff who worked within it.

Over time and, certainly since the introduction of self-assessment, the groundswell of opinion, from both the profession and, (some) former employees of Inland Revenue and HMRC, is that; standards have significantly dropped and, there's an air of arrogance, which is ill founded. Only the hierarchy within HMRC still believe they can walk on water, the rest of us have seen those who can't swim.

Wouldn't it be more acceptable and understandable if, for once, HMRC and HM Treasury, provided a more robust apology for; expending vast amounts of time and resources and the flogging of a dead horse?

How often do the profession thumb their noses and, quite rightly say, "we told you so"?

Of course, I'm expecting too much and, over the coming years, the situation may descend into chaos.

The one benefit of a recession is that it is only when the tide goes out that you can see who is wearing swimwear. HMRC has been swimming naked for at least 10 years but, being part of the public sector, unfortunately cannot be liquidated.

The issue as reported to me by a senior individual working for a well known software company, is that the individuals dealing with MTD at HMRC have no experience of how the real world of small business and accountants works.

Cloud software is not fool proof, like anything it's great when the person using it knows what they are doing but I think only about 5% of our clients would come close to producing what we consider to be correct figures. Our clients do not have the time or interest in doing things themselves which is why they pay us.

HMRC need to appreciate that if they want better data, they need to work with us not against us. A one month window each quarter would only cause us to push responsibility to our clients and the end result is definitely NOT going to be better data. In fact it would be trash data tidied up each year by 31 January (sound familiar?). As the senior software individual told me - 1000 lines of data fixed by 1 figure in an adjustments column for each category by the accountant at year end.

I agree with MTD and I repeat my often repeated belief that it should be a quarters window to submit a quarters submission for small businesses. That way we can all work together and it will be good for our workflows, for our clients and for HMRC.

HMRC just have to ask themselves what they want from this? Good data or penalties.

"The announcement on 13 July 2017 that the rollout of MTD for business was to be pushed back to 2020 came as a big surprise to everyone, including the software development support team at HMRC."

It is interesting that you think this was a surprise. It was what I expected (see my posts on Aweb) and I am sure that many other AWeb members are not surprised either, although I can see that the MTD team, who live in their own delusional world, might be a bit stunned by the news.

The Elephant in the Room here is that a great number of VAT registered businesses (all of them really) will still have to use MTD compliant software to submit their VAT Returns from April 2019 onwards.

This is still an unreasonable condition as many of those businesses will not convert in time, or even try to. Where is this MTD complaint software anyway that can deal with every situation associated with accounting for VAT?

HMRC will need to think about this again and be even more pragmatic about the chances of this working. It seems foolhardy to me to risk the collection of vital VAT income for the sake of a vanity project.

This, quite simply, will not work, and why try to cling on to this particular aspect of MTD when it has been conceded that not much else of the project will work either?

"The announcement on 13 July 2017 that the rollout of MTD for business was to be pushed back to 2020 came as a big surprise to everyone, including the software development support team at HMRC."

It is interesting that you think this was a surprise. It was what I expected (see my posts on Aweb) and I am sure that many other AWeb members are not surprised either, although I can see that the MTD team, who live in their own delusional world, might be a bit stunned by the news.

The Elephant in the Room here is that a great number of VAT registered businesses (all of them really) will still have to use MTD compliant software to submit their VAT Returns from April 2019 onwards.

This is still an unreasonable condition as many of those businesses will not convert in time, or even try to. Where is this MTD complaint software anyway that can deal with every situation associated with accounting for VAT?

HMRC will need to think about this again and be even more pragmatic about the chances of this working. It seems foolhardy to me to risk the collection of vital VAT income for the sake of a vanity project.

This, quite simply, will not work, and why try to cling on to this particular aspect of MTD when it has been conceded that not much else of the project will work either?

Probably as a vain attempt at a face-saving exercise. So many high-profile people have been shown to be complete idiots by the entire fiasco.

George Osborne (for one) should have talked it through first with his more sensible brother, Ozzy.

"George Osborne (for one) should have talked it through first with his more sensible brother, Ozzy."

"Evnin Stanna, get yoor Evnin Stanna" - Breaking News ...... George and Ozzy Osborne to headline at Glastonbury in 2019. Folk hero Jeremy Corbyn said "This is great news, perhaps they can do a duet with me and John before we speak to the people again"

Why when accessing my clients' ( or they accessing tbeir own) PTA acconts are we /they told that to access the SA data i e the most important information on it ) we must to go to GOV.UK vector thus requiring more access codes , passwords , two factor authentication, Christine Keeler s soiled underwear et al .

If HMRC are really listening, then the first thing they need to do is get rid of anything mandatory about their MTD project. Then, starting from a position of discussion and a realistic, pragmatic approach, a workable timetable can be drawn up to introduce MTD on a voluntary basis at a pace that will suit everyone involved.

No one likes to be told what to do, especially by people who clearly do not know what they are doing themselves. This kind of approach will never work.

Working together is going to be much more successful and is the right way to progress with this project.

This must be a disaster for HMRC staff. The CT system is ancient and creaking, even the ITSA systems is 20 years old for goodness sakes! Nothing seems to link together properly and every system has a separate way of doing things and its own referencing system. At the moment if a client changes address getting all HMRC's systems up to date was time consuming and error prone. MTD did at least offer a degree of rationalisation of the mess and would have allowed HMRC to turn off some of these old systems. If I read this announcement correctly, they will have to keep the old systems running for many more years and we will keep footing the bill!

If HMRC had of taken Agent strategy to it's fullest conclusion there would have been no need for MTD. Let's hope that AS is now resurrected and we can move forward.
Perhaps the fact that we have been proved right with MTD, HMRC might now trust us to know what we are talking about and let us control the admin side of taxation (oh yes that includes employment status). Come on HMRC do you want "Spandau" or "Speedcore".

"The difficulty accountants will face is persuading clients that the costs of using MTD-compliant software will be outweighed by the convenience of digital record keeping, better accounting information, and potentially lower accountancy fees."

No I certainly won't be persuading clients that moving digital will result in lower accountancy fees.

Perhaps at least now Xero and the other software firms who saw sleeping with the enemy as a necessary evil of progressing their own interests will not be so eager to provide the support the Revenue will need to implement such a system.

You only need to see the fiasco caused by the Revenue's inability to have a 2016-17 tax calculator that works (hence the ever extending exclusion list) to see where we will be if 'they' introduce MTD.

Everyone who was involved in the MTD fiasco should go for a cold shower and then do the decent thing and resign. The angst that has been caused by their sheer arrogance must have increased the prescribing of medication for hypertension. Perhaps they should apply for jobs in accountancy practices.

Everyone who was involved in the MTD fiasco should go for a cold shower and then do the decent thing and resign. The angst that has been caused by their sheer arrogance must have increased the prescribing of medication for hypertension. Perhaps they should apply for jobs in accountancy practices.

Everyone who was involved in the MTD fiasco should go for a cold shower and then do the decent thing and resign. The angst that has been caused by their sheer arrogance must have increased the prescribing of medication for hypertension. Perhaps they should apply for jobs in accountancy practices.

As my previous contributions have shown I for one have been apoplectic over MTD. I can't believe we still have people calling to engage with HMRC. What the @£#x do they think we have been trying to do for 4 years. I can't even get my Tory MP to listen and respond. I filled in the huge 70 page consultation document like many others who disagreed violently with this madness only to see reported to parliament that the overwhelming response from the 3,000 respondents was a clear support for MTD. Evidently my response was conveniently lost. This crowd couldn't organise the proverbial in a brewery. I implored someone from HMRC to come and work with one of my B&B clients here in Cornwall during the summer months to clearly see that accounts were not high on their priority list whereas earning a crust of bread WAS. It is the usual story with those working and living inside the M25 having no concept of real life out in the sticks. It will be ever thus until there is genuine 2 -WAY conversation and we are treated as equals and not as "country bumkins" which is how we are currently perceived. I ask AGAIN - When did Civil SERVANTS and MPs (Public SERVANTS) become our LORDS and MASTERS? Sadly I see nothing changing any time soon and my one VAT registered client who pays her VAT CORRECTLY on TIME EVERY quarter will be dealt with shabily I have no doubt.

All that matters is that this ill-conceived, poorly thought out, incompetently planned and unduly hurried project was brought to a shuddering halt before any serious damage was done. Far better than a motorway pile up in slow motion followed by multiple botched work arounds.

A pity, however, that so much time and resources were wasted.

Still, this will make an excellent case study for trainee project managers.

However, on a practical point, when will companies with a turnover of more than £85k and regsistered fro VAT have to comply with MTD? Is it 2020 and beyond or are they caught by the new timetable and have to comply from 1 April 2019 in respect of VAT only? The table in the article and everything I have read seems a little ambiguous. Thanks.

Yes - all a mess really - I just wondered what timetable category those clients with a turnover under £85000, but who are vat registered, fall under? Presumably, they would have to conform from April 2019 as well?

We have been keen to transition clients from manual records to MTD compliant software over the past couple of years by explaining to clients that MTD is coming. The new schedule ("at least 2020", "optional") makes us foolish, particularly in it never does come into place for clients under the VAT threshold.

I feel sorry for software developers too, who have invested huge amounts of time/ money into what would seem to be a failed project.

I can't help but laugh at their comment that no other taxes will be affected by MTD until MTD for VAT is working seamlessly. Given HMRC have still not really got CIS for Limited Companies working properly yet after over 10 years, you really have to despair.

Personally, what is wrong with the current system with a few tweaks? I have clients who believe in keeping the minimum amount of personal information online. They think that scams are getting cleverer and, as they do, they are getting easier to fall for. I feel the more we embrace technology the easier it will also become to be duped into a scam. I still report all scams to company phishing email addresses. I recently had my first one back (BT) that said it wasn't a scam it was real. Even big companies are not following the rules about links and attachments in their emails. We are seeing more and more cyber attacks and the small business won't have the resources to stay as secure as, say, the NHS. And they failed.

I'm not saying everyone should stay away from technology, not at all. Just that those not embracing it do have a valid opinion and should be allowed to exercise that. I am of the opinion the most accurate records are kept by taxpayers when they are able to keep them in a format they understand and find easy to handle - I give clients the options of digital, digital cloud or manual. This will, like cheques, eventually err toward the digital naturally as those who generally find it harder to embrace technology tend to be the older generation.

As for 5 times a year reporting - why did HMRC bring in annual VAT accounting? Those problems still exist.We all know how fast a year goes - its like a blink of an eye. Annual reporting is absolutely fine. Blieve me - HMRC might not realise it but it doesn't want 4 client digital led reports a year - it really doesn't! They wouldn't have the resources to sort them out. They are extremely naive if they think we sit in our ivory towers simply moving numbers for accounting records to tax returns. The records are OK - it's just tax has never been more complicated and in "moving" each number there are many technical tax decisions to get right. Maybe HMRC realise this when they see the hash up they have this year with their own software being unable to accept tax returns that have been completed correctly and tax calculated correctly.

You're totally right about technology. It's creeping ahead too fast. Time for catch up and sorting.
As for scams, I now treat all e-mail that I'm not 100% sure of as scams. That shouldn't really be the case, however I've seen so much authentic looking stuff that it's becoming the only way.

The irony here is that many of the VAT schemes were introduced to REDUCE the amount of record keeping that small businesses had to do and in general those schemes work well.

Bearing in mind that under the revised proposals, ALL VAT registered businesses will be required to maintain their Accounting records in MTD compliant software from April 2019, these schemes to reduce record keeping will inevitably disappear as it will be mandatory to maintain full accounting records anyway.

This means that hundreds of thousands of VAT registered businesses (perhaps millions) who are not using MTD compliant software at the moment will have to do so by April 2019. This includes all types of businesses including Limited Companies.

MTD is not quite kicked into the long grass (yet) as suggested by an earlier poster.

I am of the view, however, that this aspect of the revised proposals is not going to happen either. You only have to look at the statistics and data available to easily come to the conclusion that there is little general public knowledge about MTD and, with currently about 6.5 million Tax Returns submitted through Agents and about 3.5 million by taxpayers themselves, the Government need to not only win over the 3.5 million but all those Agents as well. With their anti-agent stance, they are a long way off doing that.

It is not acceptable to veer from a small business friendly VAT system to an anti-small business system overnight and it simply will not happen.

Feedback to HMRC for MTD
1) Stop complicating the tax system
2) Simplify the tax system massively (not just OTS scrapping tax free luncheon vouchers)
3) Get your own house in order
4) Actually listen to people who have been there, done that and got the t-shirt, not some public sector employee who has never worked in the private sector and has no glue what it is like
5) Abandon agile working (making it up as you go along) and consult (properly and listen), plan, implement, test, re-consult, refine, re-test and then soft launch.

I think there is a great opportunity here for Accounting Web to contribute to the future of the MTD project by creating an 'official' forum where serious discussion can take place about the future of MTD.

When I say 'official' I mean a forum of ideas that is formally recognised by the Government as part of their future consultations on MTD.

A forum that is open to views and ideas from Accountants, businesses, software developers and all other stakeholders.

In the post Brexit era where the "people" and their Government are in control of the future of this County, it makes perfect sense that we should be able to say what we want our future to look like instead of being told what to do by others.

I have wondered if anyone from HMRC does look at this forum. I also wonder if the major accountancy bodies are also too distant from the small practitioner, so their views and responses miss the practical areas of concern for many SMEs.
Does anyone know if HMRC ever referred to this forum on the subject of MTD ?

Ok that will get a perspective from our point of view but is the small business (which MTD will have the main affect on) going to post their views. Will they even reply to a survey?
HMRC don't even ask their own people about how what they do will affect them so they really won't listen to us until, of course, it's too late.

To be fair, I think the major bodies did a good job in their representations on MTD. I also sent in a long response (as an experienced practitioner working with with many very small businesses). HMRC just were not listening.

I imagine this change of heart has come from Brexit taking up so much time, HMRC's inability to even manage to put in place working 16/17 software and possibly some sort of initial pilot feedback. Oh, and plus everyone, including the Lords telling them their inital reasons for MTD did not pass muster.

To be fair, I think the major bodies did a good job in their representations on MTD.

You jest!

The major bodies are the majority members of CCAB: and the -mainly - practitioner members of CAB's governing council are from Top Ten firms.

Whose knowledge of SMEs is pretty sparse to say the least!

Indeed, my wife finished up her city career (PwC and HSBC) on a contract for ICAEW and knows the inner machinations rather well! Whilst ICAEW do have a Small Practitioner's Committee, it was and remains "The Poor Relation".

Top Ten firms focus on major multinationals and major plcs. The rump of SMEs are Class Size Zero and Micro Enterprises:

Rather than me bombard you with numbers, please review this "Business Population" report and analysis from BIS in 2015.